Vietnam's export slowdown this year has bottomed out and is expected to grow in the fourth quarter of this year, according to Michael Kokalari, Chief Economist at VinaCapital, The Star reported on August 31.

Overall, Vietnam's total import-export turnover of goods for the first eight months of 2023 fell by 13.1% y/y to $435.23bn, according to the General Statistics Office (GSO). Specifically, export value experienced a 10% fall y/y, recording $227.7bn, while import value declined by 16.2% to $207.52bn.

Despite the overall downturn, Vietnam enjoyed a trade surplus of $20.19bn during the same period. The month of August alone saw a 6.7% increase in total trade compared to July, amounting to $60.92bn, although this still represented a 7.9% decline compared to August last year --  the sixth straight month of declines as Vietnam’s continues to suffer from weak global demand.

However, Kokalari anticipates exports to pick up in the fourth quarter, driven by a stabilization of the US inventory cycle and the accelerating trend of manufacturing relocation from China to Vietnam.

The United States holds a pivotal role as Vietnam's largest export market, constituting approximately one-quarter of the nation's total exports. However, Vietnam experienced a decline of over 20% y/y in exports to the US during the first seven months of the year.

The US remained Vietnam's largest export market in the first seven months of this year, with an estimated turnover of $62.3bn. Conversely, China was the largest import market for Vietnam, with imports totalling $68.1bn, as per Vietnamese media reports.

US retailers and consumer product companies were over-purchasing "Made in Vietnam/Made in Asia" goods in the preceding year, anticipating a post-Covid reopening economic boom.

Contrary to expectations, instead of allocating funds towards manufactured products after the Covid lockdowns eased, US consumers directed their spending towards services like travel and dining out. This phenomenon led to a substantial increase of over 20% y/y in inventories for companies like Walmart, Target, and Nike by the end of 2022.

In response to their excess inventories, US retailers curtailed orders from Vietnamese factories this year, causing a decline in Vietnam's exports to the United States, says VinaCapital.

Throughout 2023, US firms have been actively reducing their inventories. The Inventory Sub-Index of the Institute for Supply Management reached a nine-year low in June, subsequently recovering slightly in July, indicating the conclusion of aggressive inventory reduction efforts.

Kokalari noted: "The aggressive inventory reduction efforts of firms like Walmart and others drove the plunge in Vietnam’s exports in the first half, but that destocking is now approaching its conclusion, and Vietnam’s exports to the United States increased by nearly 7% month-on-month in July."

Vietnam's exports to the United States saw an improvement, with the y/y decline reducing from 26% in June to 14% in July. This contributed to an overall decline in Vietnam's total exports from 12% y/y in the first half to 2% y/y in July.

Alongside the cyclical recovery in exports to the United States, Vietnam is benefiting from a relocation of production from China to Vietnam. This has played a part in Vietnam's relatively better performance in exports compared to other Asian countries like China, South Korea, and Taiwan.

The establishment of new factories in Vietnam is a major net plus. Kokalari said: "Vietnam is the only country in Asia that is also significantly benefitting from the establishment of new factories in the country."

The improvement in Vietnam's exports is predicted to gain momentum throughout 2023 based on key leading indicators. Import growth aligning with export growth, a moderation in the decline of export orders, and an increase in firms' inventories of raw materials in July are among the factors contributing to this optimistic outlook.

Factory output also exhibited growth, expanding by 4% month-on-month in July. As the year progresses, the combination of these factors is likely to propel Vietnam's export sector towards a robust recovery.